Medium-Term Business PlanFirst Medium-Term Business Plan

The First Medium-Term Business Plan (Released April 2003 Planning period: Fiscal 2003-Fiscal 2005)

In April 2003, the Nippon Unipac Holding Group (the Nippon Paper Group) has drawn up the First Medium-Term Business Plan covering fiscal year 2003 to 2005 (April 1, 2003 to March 31, 2006). The goals of the First Medium-Term Business Plan, based on the slogan of "higher, faster and stronger," were to achieve consolidated ordinary income of ¥100 billion or more in fiscal 2005, along with a decrease in interest-bearing debt to ¥700 billion or less, and an increase in productivity of 10% or more.

Faster - Rationalization of production facilities and prompt realization of effects from business reorganization.

Shutdown machines

The number of shutdown machines

Reduction in production capacity

Paper

8

- 370,000 t/a.

Paperboard

3

- 260,000 t/a.

Household tissue

2

- 40,000 t/a.

Total

13

- 670,000 t/a.

Higher - Consolidated ordinary income: over ¥100 billion.

Ordinary income plan of each subsidiary
(Strengthening of profit basis of subsidiaries under the banner of Nippon Unipac Holding)

Consolidated subsidiary

(Billions of yen)
Fiscal 2006 planned

Nippon Paper Industries Co., Ltd.

700

Nippon Daishowa Paperboard Co., Ltd. *

95

CRECIA Corporation

45

NIPPON PAPER-PAK CO., LTD.

40

Nippon Paper Chemicals Co., Ltd.

30

Nippon Paper Lumber Co., Ltd.

15

Other consolidated subsidiaries

75

Total

1,000

*Consolidated basis for Nippon Daishowa Paperboard Co., Ltd. and stand-alone basis for the rest of the companies

Stronger - Consolidated interest-bearing debt: under ¥700 billion.

FY2003

FY2005

Difference

(D/E) ratio (times)

2.1

1.3

-0.8

Equity ratio (%)

23.3

30.3

7

Cash flows for three years
(Fiscal 2004-2006)

Inflow

Ordinary income

¥235 billion

Depreciation and amortization

¥240 billion

Total inflow

¥475 billion

Outflow

Investment

¥185 billion

Repayment of debt

¥220 billion

Tax payment *1

¥40 billion

Dividends paid, etc. *2

¥30 billion

Total outflow

¥475 billion

*1Including tax effects leading to the realization of losses

*2Consecutive payments of steady dividends

Stronger - To raise productivity by 10% or more.

Review of performance

Over the past three years, we reduced surplus production capacity and improved production efficiency by rebuilding our manufacturing structure, and we achieved our numerical targets for raising productivity and reducing interest-bearing debt. These efforts helped us enhance our corporate structure and become more competitive.
Despite these accomplishments,we missed our operating income target of ¥100 billion by a wide margin.
Analysis of our performance reveals that cost reductions and lower depreciation boosted profits by ¥66.5 billion, which is more than initially expected. Highlights include a reduction in variable costs, due partly to integrating raw material procurement, a reduction in fixed costs through the elimination of various redundancies, and improvement in net financial expenses through a reduction in interest-bearing debt.
However, the business environment affecting the Group changed dramatically during this period, and new challenges have emerged. The first is higher raw material and fuel prices. Rapid economic expansion in China and other newly developing countries has contributed to rapid growth in energy demand. Consequently, prices for crude oil, coal, and other fuels have risen at unprecedented speeds, and this has had a significant negative impact on profits at the Group.
Additionally, competition with rivals both in Japan and overseas has grown more intense, and prices for printing paper and household tissue have fallen more than we expected. The decrease in product prices and the aforementioned rises in raw material and fuel prices have had a combined negative impact on profits of ¥55.1 billion.
We are extremely disappointed to achieve only half of our ordinary income target for the final year of the First Medium-Term Business Plan.